Report slaps Capital Metro

April 23, 2010

Capital Metro mismanaged a $200 million reserve fund, opened MetroRail with potentially unsafe bridges and has high operating costs for its bus service that are not sustainable, according to a Texas Sunset Advisory Commission report being released today.

The 55-page report, prepared at the direction of the Legislature under a law passed last year, says that the transit agency must improve basic budgeting and capital planning procedures and that it should spend what money it has on repairing or replacing 13 rail bridges — some of which are at least a century old — rather than on expanding the capacity of the 32-mile commuter rail line, a move often mentioned by Capital Metro officials.

State Sen. Kirk Watson, D-Austin , who authored the law prompting the review, said that the report “is exactly what I wanted — and what this community has needed — for some time. … It provides a road map for where Capital Metro needs to go from here. It’s now up to the board to implement these recommendations.”

Capital Metro board Chairman Mike Martinez, an Austin City Council member, in a statement called the review “an illuminating process” and said he was committed to putting the commission’s suggestions in place. The sunset commission is a state body that typically reviews the operations of state agencies and can recommend their abolishment. In Capital Metro’s case, only a review was authorized.

Adam Shaivitz , agency spokesman, said Capital Metro officials would not comment on the report until its official release this morning .

Among the report’s major findings:

• Capital Metro failed to responsibly manage its finances. The agency incurred significant financial obligations, principally to the City of Austin, without setting aside money to pay for them, and failed to maintain a proper reserve fund that might have allowed it to better weather the recession.

The agency was urged to amass and maintain a reserve fund equal to at least two months of operating costs — about $27.5 million currently, nearly six times what it had on hand at the beginning of this fiscal year in October — and that its board adopt a five-year capital improvement plan. Capital Metro’s new board and its staff have talked extensively in recent months about doing both.

• The costs for the agency’s in-house transit services are “excessive and not sustainable.” Almost 20 years ago, Capital Metro created StarTran, a legally separate bus operations arm, to manage union bus drivers, mechanics and maintenance workers. StarTran’s costs are too high, the sunset commission said, and although some of the agency’s bus routes are operated by other contractors, the agency should competitively bid out all services “not directly provided by its own employees.”

That recommendation, likely to be highly unpopular with the agency’s transit union, “would not come without some disruption and dissension,” the report notes.

• Capital Metro must “enhance safety” before expanding passenger rail. Noting that the Federal Railroad Administration approved MetroRail for operations in March, the report says that Sunset staffers found that among the 42 bridges on the passenger line, 10 need major repairs and three should be replaced. Two recent studies found problems with the bridges that involve various “important structural components” that are “dry, split, sinking, crooked, or completely missing.”

Capital Metro, the report says, has failed to budget or complete a cost estimate for all the necessary bridge work. The report recommended that before Capital Metro begins to expand the Red Line with double tracks or more cars, it should instead fix the bridges. Paid ridership on the line has so far been below projections.

• Capital Metro has not effectively communicated with the public, “eroding public trust in its decisions.” The agency’s new board — also created under the law that ordered the sunset review — faces a significant challenge overcoming the agency’s “long legacy of appearing ‘tone deaf’ to public concerns,” the report says. In particular, Capital Metro’s relationship with riders who have disabilities “is in serious disarray.”

That new board, according to the report, has already taken important steps, suspending use of informal work sessions and consent agendas that had resulted in multimillion-dollar construction contracts being voted on with no public discussion at televised board meetings.

Other findings in the report:

• Capital Metro’s previous board awarded “lavish compensation” to former Chief Executive Officer Fred Gilliam “behind closed doors.” The board, usually acting in closed session with little public discussion later, agreed to make extra pension payments for Gilliam and gave him the equivalent 35 years of service when he retired from the agency in October after just eight years. That increased his pension from $2,668 a month to $7,500 a month for the rest of his life.

The board did this, the report says, based on Gilliam’s self-evaluations; it did no independent review of his work.

• Unlike transit systems in Houston and San Antonio, which require administrative employees to put 3 to 6 percent of their salaries toward a pension plan, Capital Metro pays 100 percent of employees’ pension costs. The agency could end up having to further subsidize the system, the report says.

• Because the agency provides bus, van and sedan services for people with disabilities beyond what federal law requires, it spent $28.9 million last year — more than 20 percent of its bus operations budget — on just 7,000 customers, about 2 percent of its riders.

• Despite recent fare increases, the agency recovers just 10 percent of the cost of bus service through fares, well below the 18 percent average of comparable transit agencies. A primary reason for that, the report says, is that fully 30 percent of Capital Metro riders pay nothing to ride. The agency staff last year recommended charging 25 cents a ride to seniors and people with disabilities (who ride free now), but the board rejected that proposal.

• The MetroRail project, originally projected to cost $60 million plus about $30 million for the lease-purchase of six rail cars, instead cost $140 million , the report says. And that doesn’t include $8 million interest cost on the rail cars. The cause, the report says: poor planning. The agency underestimated the cost of the cars by almost $7 million , spent an additional $12.7 million on a signal system it did not originally plan to install and had to spend another $30.4 million to make it safe to run passenger rail on a freight railroad.